Peso on a freefall, slumps to 58.49:$1

MANILA, Philippines — The peso continued its downward spiral yesterday, shedding another 49 centavos to settle at an all-time low of 58.49 to a dollar from Wednesday’s 58 to $1 after the US Federal Reserve unveiled a third straight huge 75-basis-point rate hike followed by a 50-basis-point increase by the Bangko Sentral ng Pilipinas (BSP).

The peso opened weaker at 58.1 and strengthened slightly to hit an intraday high of 58. Volume jumped by 44 percent to $1.51 billion from Wednesday’s $1.05 billion.

Security Bank chief economist Robert Dan Roces said investors are expecting a more aggressive rate hike from the BSP after the US Fed delivered another jumbo 75 basis points to quell runaway prices.

“The current level of the peso means it needed more than 50 basis points for serious support to the local currency. As such, the forex rate may remain elevated amid a protracted export slowdown and the strengthening of the dollar as the US Fed maintains its hawkishness,” Roces said.

The BSP raised its 2022 inflation forecasts to 5.6 percent and to 4.1 percent for next year amid a higher increase in global non-oil prices, more transport fare hike petitions as well as higher food and sugar prices.

“Extended peso weakness bleeding into inflation, plus further Fed action means the BSP may need to match the Fed actions,” Roces said.

However, BSP Deputy Governor Francisco Dakila Jr. said the central bank does not need to match the rate increases delivered by the US Fed in order to stabilize the exchange rate movement.

“The intention is not to target a particular level or exchange rate; that is not the policy objective. In deciding on the appropriate stance of monetary policy, the priority is to bring inflation back to within the target band over the medium term,” Dakila said

He said the BSP believes that the latest rate increase would help achieve its price stability objective.

“These adjustments will help alleviate some pressures off the peso, which could in turn temper inflationary impulses stemming from elevated global commodity prices. The BSP stands ready to participate in the foreign exchange market only to ensure orderly market conditions and reduce excessive short-term volatility in the exchange rate,” Dakila said.

Furthermore, Dakila said the central bank is prepared to utilize other tools to respond to fluctuations in the exchange rate and ensure that legitimate demand for foreign currency is satisfied.

For his part, Rizal Commercial Banking Corp. chief economist Michael Ricafort sees continued peso weakness, despite the latest 50-basis-point local policy rate hike to 4.25 percent.

Ricafort said the ongoing tightening cycle by the BSP could lead to higher import prices and overall inflation, as the peso already depreciated by 14.7 percent, closing at 50.999 to $1 in end-2021.

He said the immediate support level for the peso is at 58 to 58.25 per $1, while the next resistance level is at 58.50 to 58.75 per $1.